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Customer success is ultimately about loyalty. Every company wants loyal customers. Recurring revenue businesses, such as Salesforce, need loyal customers. Acquiring customers is expensive. Really expensive. That makes keeping them a necessity, no matter how big your market might be. It's simply a losing battle to try to out-acquire a high churn rate. So, if a business depends on loyalty, it's critical to understand what that word means.

Much has been written about different kinds of loyalty. The general consensus is that there are two kinds of loyalty – attitudinal loyalty and behavioral loyalty. These are sometimes referred to as emotional loyalty and intellectual loyalty. The premise is simple although the social science may be quite complex. The premise is that there are customers who are loyal because they have to be (behavioral/intellectual), and then there are customers who are loyal because they love a particular brand or product (attitudinal/emotional). As a vendor or brand, the latter is highly preferable for a variety of reasons: willingness to pay a higher price, less vulnerable to competition, more likely to advocate for “their” brand, and so forth. The housewife who shops at Hank's Grocery because it's the only place within 30 miles that sells bread and milk is behaviorally loyal. It's possible she's also attitudinally loyal (Hank could be her husband), too, but her basic loyalty is because she does not have options. That's the extreme example, but we're probably all behaviorally loyal to a variety of products. I get gas at the same place 90 percent of the time because it's convenient and, based on very little research, a good price. The fact that they shut down their credit card machines for 10 minutes at 7:00 every morning is annoying because that's exactly when I'm on my way to work. They don't know it, except for the cashier I expressed my frustration to one day, but this creates the opposite of attitudinal loyalty for me. Fortunately for them, the convenience continues to win the day for now. But they are vulnerable to another station popping up nearby, priced similarly, and with credit card shutdowns at 3 a.m. instead of 7 a.m. or, better yet, who has figured out that it's important not to shut down the credit card machines at all.

Attitudinal loyalty is much harder to create and sustain because it's expensive. It's expensive to build products that customers love instead of products that they simply own. It's expensive to create an experience that delights instead of one that just tries to not annoy. When my daughter was graduating from high school, she needed a laptop computer. What was it that caused her to stomp her foot and insist on a Mac when the Dell options were functionally comparable and much less expensive? The logical conversation I attempted with her did not move her an inch. Despite the fact that she couldn't cite a single speed, function, or quality argument for the Mac, her heart was set and her mind made up. I still don't know why (but she did get her Mac). Maybe it was because the cool kids all had one. Maybe it was because she loved her iPod. Maybe it was because she just liked jeans and black turtlenecks. I honestly don't know. But now I know what to call it – attitudinal loyalty or, in her case, more appropriately, emotional loyalty (because the discussion did include tears). And that's the kind of loyalty we all long for in our customers.

Apple has been chronicled in so many ways – papers, books, movies – that I will do it no justice here in comparison. It did something with regard to loyalty that looks and feels like magic but clearly isn't. There's just a certain quality to Apple's product, packaging, advertising, and presentation, and it creates not only a purchase but also an experience that somehow touches an emotional chord. Steve Jobs figured out how to create attitudinal loyalty perhaps better than anyone, before or since. And it's literally priceless. The fanaticism of Apple's loyal customers carried it through a very dark time when products weren't very good and its business teetered on the edge. Apple came out on the other side with virtually all of its loyal fans (some weren't even customers) intact, and, then, when it started to make products that partially justified that fanaticism, the ride to the top (most valuable company in history) was full-speed ahead.

So, what's the point, and how does it relate to customer success? Customer Success is designed to create attitudinal loyalty. Marc Benioff and Salesforce figured it out and, over the past 10 years, have invested massive amounts of time and money into customer success. Behavioral loyalty wasn't really an option in the early years because Salesforce was never going to be the only game in town, and customers weren't sticky because they hadn't invested emotionally or financially into the integrations and processes that make switching really expensive. One could argue that lots of Salesforce customers today are behaviorally loyal because the product has become central to the way they do business and too difficult to swap out. But many of those customers are also attitudinally loyal – check out Dreamforce (their annual conference) sometime if you don't believe it – and that's the best of both worlds.

Steve Jobs also knew that attitudinal loyalty was critical, and, in addition to creating it with elegant and beautiful products, he also invested in customer success. But, being the marketing guru that he was, he came up with a different name for it – Genius Bar. When Apple decided to create retail stores, the naysayers were loud and numerous. Hadn't history proved that retail stores for computers didn't work (RIP Gateway)? What Jobs banked on correctly was that retail stores for a consumer technology brand, at least one with a core fanatical following, could work. And, of course, it did. One could argue that the publicity derived from the long lines outside Apple stores three days before the release of the new iPhone was worth the investment in all the stores combined. But Jobs took it one step further. He didn't settle for having stores only showing off and selling his products, no matter how many helpful salespeople there were in every store. He also created a place in the back of the store staffed with customer success managers. We'll explore in detail what we mean by customer success manager later in this book, but the simple role definition is this: individuals that help customers get the most value out of your products. That's clearly what Apple Store geniuses are intended to do. It wasn't cheap for Apple to decide to have 10 or 20 geniuses on the payroll at every single store. As we said, attitudinal loyalty is not cheap. But it changed the nature of the relationship between vendor and customer by personalizing it and extending it beyond the purchase. That's something that very few business-to-consumer (B2C) or retail companies have figured out how to do. Maybe Zappos and Nordstrom have with their emphasis on customer service. Maybe Amazon has in a different way by adding Prime to its offerings. But I bet you can't think of a lot more. Interestingly, we all know that some of the geniuses at the Apple Store are not really geniuses at all. Many of us have even had frustrating experiences with them. The fact that they exist to touch and help real customers and build even the slightest relationship drives attitudinal loyalty. That's the art of customer success. Most vendors don't start with the fanaticism and loyalty that Apple does (a two-edged sword by the way), but we desperately want our customers to become advocates, not just customers. We need attitudinal loyalty not just behavioral loyalty. Customer success is the means to that end.

Marc Benioff created customer success out of his need to reduce churn. Steve Jobs created customer success out of his intuition that it would increase attitudinal loyalty to Apple products. We're lucky today that we can follow in the footsteps of two icons who have proved that customer success works regardless of your business model. It may seem more obvious, and more imperative, in a recurring revenue business, but it can be no less valuable in a traditional consumer business.

Tien Tzuo was the eleventh employee at Salesforce and, not coincidentally, in the room in Half Moon Bay for Dr. Doom's presentation. He is currently the CEO at Zuora, where he coined the phrase the subscription economy to describe the changing landscape as traditional businesses were getting disrupted by the move to a recurring revenue model. He also said, although he may not have been the first, “In traditional businesses, the customer relationship ends with the purchase. But in a subscription business, the customer relationship begins with the purchase.” That's a powerful distinction and Benioff and Jobs both realized it and invested heavily in it. Benioff created the most successful subscription-based software company in history. And Jobs brought the subscription thinking and attitude into a nonsubscription business in a way not previously done. Many other traditional companies will choose the same path in the coming years, while recurring revenue businesses will not have the luxury of choice.

The Subscription Tsunami

Customer success sounds like a catchy phrase your marketing team might come up with, doesn't it? Or a mantra some PR firm concocted for their CEO to make it sound like she really does care about customers. But in today's recurring revenue businesses, customer success is much more than a catchy phrase or a slick marketing campaign. It's a necessary part of any subscription business, as Mr. Benioff and Salesforce proved, and it requires investment, attention, and leadership. It's not lip service around “putting customers first” or “the customer is king.” Those phrases sound good but such campaigns often start off with a bang and then fizzle quickly unless they are driven by a passionate and charismatic leader (like Tony Hsieh) or by a business imperative. Customer success, as we'll discuss throughout this book, falls squarely into the latter category. It does not require a passionate or charismatic leader, although that helps, because it's nothing less than life or death in the subscription economy.

Real organizational change in business is rare. Think about our organizations today – sales, marketing, product development, finance, and services. Those have been the fundamental components of an enterprise for hundreds of years despite the enormity of change within the business world during that time. One could argue that human resources is new, but the reality is that it was always being done, just not led by a separate organization. As far as fundamental organizations go, information technology (IT) might be the only truly new invention in the past 70 years, driven obviously by the ubiquity of technology in every aspect of our jobs. Customer success is the next big organization change. As with IT, customer success is becoming a thing because something else is changing – in this case, the business model. Subscriptions are all the rage. From software to music to movies to diet programs. The way to the heart of investors and the public markets is to establish a business that creates monthly recurring payments from lots and lots of customers. If Wall Street and the investment community love something, so do the CEOs. If a business is not subscriptionable, it is probably becoming pay-as-you-go, which has all the same characteristics and imperatives. Subscriptions are obviously not new, but the movement of existing businesses from a nonsubscription business model to a subscription model most certainly is. Everyone is searching for a recurring revenue component to their business model and, ideally, the whole business, not just a component. This 15-year-old movement started with the software world, but the splash caused by that boulder is rippling across virtually every other industry, too.

Thus, the need for this book. The subscription tsunami is well under way and having a massive impact on the software world. Customer success is one of the secondary waves being drawn in behind the tsunami. But customer success is not only a new organization but also a philosophy sweeping its way into nonsoftware, nontechnology, and non-B2B companies. It may not have been referred to as customer success until recently, but it's happening everywhere, as witnessed by the Apple story, driven by technology and the availability of information (i.e., the Internet). No matter what kind of business you are in, now is the time to understand what to do about this wave. Let's start by exploring the origins of customer success in B2B software because that's where this all began.

Software is eating the world. That statement was only slightly controversial when Marc Andreesen first wrote his famous essay in 2011.

“Why Software Is Eating The World” —http://www.wsj.com/articles/SB10001424053111903480904576512250915629460

Today, his notion has moved from bold and futuristic to indisputable. If there's any truth to it at all, it's critical that every business leader understands what is happening in Silicon Valley. The software industry has gone through a dramatic transition over the past 15 years, and the customer is at the center of this transition. This change has been driven by the ubiquity of the Internet and the advent of that thing called the cloud. In fact, the farther away we are from the beginning of this transition, the clearer the bifurcation between the way things were done BC (before cloud) and AC (after cloud). The change has altered almost every aspect of the way a software company works but is best understood through the lens of the customer. In particular, B2B software customers AC differ from BC customers in two very important ways:

1. How they purchase software

2. How their lifetime value (LTV) is realized

These two themes are closely related. In fact, number 1 is the reason for number 2. To be truly precise, the major difference in the purchasing process is not really how customers purchase a software product but that they purchase a software product. In the days BC, unlike today, the purchase transaction actually did result in a change of ownership. This model, commonly referred to as a perpetual license, passed ownership rights to use the software from the vendor to the customer at the time of the transaction. Because of the singular nature of this transaction, the vendor needed to maximize the monetary value of it in order for its business model to work. The result was that the cost of the initial software purchase was relatively very high, not to mention the associated hardware costs. For a software company, especially enterprise B2B, this was the only path to profitability (yes, there was a time when that mattered).

A consumer scenario, which might bring back memories for some of you, helps to illustrate how dramatic this change has been. When I was 16 years old, I fell in love with a song I heard on the radio, “Bohemian Rhapsody” by Queen. It was amazing and complex and needed to be listened to over and over (although my mother might disagree with that last point). The only way to accomplish that goal in those days was to purchase the album (“A Night at the Opera,” for those who care). So that's what I did. I went to my nearest music store and plunked down $16.99 for the 8-track (if you don't know, look it up), a lot of money for a 16-year-old kid at that time. Basically, I paid $17 for one song. To play and listen to that song, I also had to have a pretty expensive stereo system. You know, the ones with the three-foot-tall speakers that doubled as bar stools. And that's the way it was – $1,000 stereo system and $17 for the album to listen to one song. This was basically the consumer music ownership experience for the better part of 50 years. The first major change, other than format and not counting Napster, in how we consumed music came thanks to Apple – the ability to purchase just one song for 99 cents on iTunes. This was revolutionary (it literally started a revolution) for the music industry. In fact, it fundamentally changed it forever, but the analogy to the software world was only completed when streaming music services, such as Pandora and Spotify, came along. No longer are songs even purchased. They are leased, and, depending on how much music you listen to, the cost per song may be down to pennies or even less. I could have listened to “Bohemian Rhapsody” thousands of times through my computer (purchased primarily for other reasons) for only a few bucks. Thankfully, for all us parents, this change was accompanied by the invention of earbuds and small and inexpensive personal music players (PMP). What drove this change in how we purchase (or lease) music? Technology and the Internet. The very same drivers that changed the way companies purchase their CRM system. (See Table 1.1.)

Table 1.1 Consuming Music Before and After the Cloud

Music

Software – Siebel versus Salesforce

In those days BC, it was common for a software deal, such as the Siebel one approximated in Table 1.2, to be a multimillion-dollar transaction. It was also common for that initial deal to constitute more than 50 percent of all the money the vendor would collect from that customer over its lifetime. In the earliest days, before software maintenance fees, that percentage might even exceed 80 or 90 percent. Contrast that with the Salesforce example (AC), and you'll begin to understand point 2 – the realization of LTV from each customer over a much longer period.

Table 1.2 Consuming Software Before and After the Cloud

It's not hard to grasp what happened and why. Let's say I'm the CEO of a software company, and I sell you my solution for $3 million. I'm well aware at that point that all of the additional money I will collect from you over your lifetime as my customer is maybe another $500,000. Given that reality, your value to me diminishes dramatically the moment your $3 million is in my bank account. That's not to say that I, or any past or current CEOs, don't care about customers. Of course we do. As we all know, customers have value beyond what they pay us – references, case studies, word-of-mouth, and so on. But that additional value, even if you include the future monetary value that comes from the purchase of more products, licenses, and maintenance fees, does not change the fundamental viability of my business. I can still survive, even thrive, based exclusively on my ability to continue to sell new customers for that same price. I may care passionately about my customer's success, but if it doesn't matter to the bottom line whether they get value or even use my solution, then I'm highly unlikely to invest significantly in ensuring their success. It was this reality that led to the birth of the term shelfware. That was just a cheeky way to describe software that wasn't being used by the customer. That still happens today by the way. SaaS did not solve the adoption problem by any means. It just matters a lot more now than it did back then.

Although lots of B2B software is still purchased the old way, the tide has forever shifted. Today, the vast majority of software companies are using this new model in which the software is never actually purchased but leased. With this new model, SaaS, customers do not own your software; they pay for the use of it on a subscription basis with a time-limited commitment. Many software companies lease their software on a month-to-month basis while others require an annual contract or longer. But, in all cases, there's an end date to the subscription, which requires a renewal. This, then, is the subscription economy. No more paying a large, onetime fee up-front; instead, software is leased on a short-term commitment. Another related wave takes the subscription concept one step further into a pay-as-you-go model. Google AdWords and Amazon Web Services are examples of pay-as-you-go. In both models, customers have become significantly more important because their LTV really matters, not only what they pay in the initial transaction. Therein lies the need for a philosophy and an organization–customer success.

Simply put, customer success is the organization or philosophy designed to drive success for the customer. That sounds amazingly obvious, but, as we mentioned earlier, there was a time when the success of our customers was not really a business imperative. That's no longer true. You see, successful recurring revenue customers today do two very important things:

1. They remain your customers.

2. They buy more stuff from you.

It's a fundamental reality for CEOs today that, if their customers aren't taking both of those actions, their business has no chance of success. The economics just don't work. And that is why customer success has become an imperative. We'll circle back here after we take a brief look at the origins of the subscription economy, which really started with the development of SaaS. Understanding the history is important because all recurring revenue businesses are following in the footsteps of the earliest SaaS companies.